NEW YORK (
(CSCO - Get Report)
have called into question what constitutes a tech bellwether, with some observers arguing that the company's recent results are
a strong indicator of economic growth.
Investors are certainly spooked by Cisco's problems. Shares of the networking behemoth are down more than 33% over the last 12 months, while consumer giant
always perceived as a bellwether
for the broader expanse of the tech market, is up almost 38%.
Is it time for the tech sector to rethink its criteria for bellwether status?
dictionary defines a bellwether as "anything suggesting the general tendency or direction of events, style, etc." That's a broad description that could be applied to a host of tech companies, including Cisco, Apple,
For Brian Marshall, an analyst at Gleacher & Company, bellwether status is dictated primarily by a firm's impact on its industry, although other factors such as company size, innovation and ability to tap into key market trends are also important.
"Apple is the gold standard for a tech bellwether in terms of innovation, absolute size, absolute revenue levels, profitability and plenty of runway ahead," said Marshall, in an email to
. "Cisco, on the other hand, is what you don't want from a tech bellwether -- huge share of total available market, looking for growth in lower margin segments, getting attacked by competition."
For others, indicator-status depends on a more specific equation.
"Within tech, I'd argue that those companies participating in the major sub-sectors (for example, semis, software, networking, servers, services, handsets etc.) that are on the attractive side of the 80/20 rule [whereby 80% of a market is dominated by 20% of the players] are the bellwethers," said Paul Mansky, an analyst at Canaccord Genuity, in an email. "Cisco's recent challenges notwithstanding, [it] certainly remains squarely within that definition."
Other analysts agree.
"Anytime that a company struggles, people think that that's a long-term trend and they don't want to use it as a barometer for tech anymore," said Brian White, an analyst at Ticonderoga Securities. "[But] just because Cisco has had two bad quarters doesn't mean that they are not a big part of the tech puzzle -- they have been around for 20 years, they dominate their industry and they have around 70% market share."